Private Investment Funds
A private investment fund is an investment company that has no intention of soliciting capital from retail investors through a public offering.
Membership to a private investment fund is mostly limited and exclusive, as most companies comprise of less than a hundred high net worth investors who have a profound understanding of the industry and usually retain significant investments elsewhere.
As a legal entity, an investment company is required to meet certain qualifications to earn and maintain its status as a private fund.
In the United States, private funds are classified as such based on exemptions indicated in the Investment Company Act of 1940, which regulates the organization of investment companies and outlines the standards by which they have to operate.
Companies that qualify as private investment funds under Section 3(C)(1) of the aforementioned legislation are not required to register with the Securities and Exchange Commission. Since their members are deemed to be highly affluent and experienced investors, they no longer require the same degree of oversight that other investment companies have need for. As such, private funds have less legal and regulatory constraints to deal with compared to funds that are traded to the general public.
Still, it is not unusual for private investment funds to be organized offshore in order to capitalize on more favorable conditions in terms of tax payments, lower levels of regulation, confidentiality, investment diversification, protection against currency devaluation, and specialized financial services, among others.
Additionally, tax exempt investors, sovereign investors, or investors with specific regulatory concerns will use offshore legal structures to avoid the administrative and reporting burdens of investing in the same structure as taxable investors—this is often referred to as a parallel fund, i.e. a fund that invests on the same terms as the main fund but with customization for a specific class of investors.
This is where Veritas Global can help. As your trusted partner, you can depend on our broad range of knowledge and professional experience in working with private investors around the world, as well as our distinct capabilities in matters that involve corporate law and financial technology.
Keeping pace with emerging trends
Most prevalent among the traditional types of private investment funds are private equity funds, venture capital funds, hedge funds, and managed futures funds, with fund managers using the aforementioned fund structures to invest in digital assets, including cryptocurrencies.
Today, however, more unconventional capital-raising model shave emerged in the new economy, including crowdfunding and the introduction of digital assets such as cryptocurrencies and non-fungible tokens (NTFs) used in emerging areas of digital art and gaming, with more innovations expected to arise from never-ending advancements in technology and changes in market trends.
With the imminent ascendancy of borderless markets and digital platforms, the formation of private investment funds is becoming increasingly more specialized, as legal and technical requirements have to comply with international laws.
Moreover, experts have indicated that the disruption brought about by COVID-19 will have serious implications on private investment and portfolio management companies as they try to adapt to post-pandemic markets “looking both for ways to salvage adversely affected parts of their portfolios and for new bets that emerging trends could support,” as aptly described in a report by McKinsey & Company.
Our team at Veritas Global is a unique group of legal practitioners because we have not only drafted the legal documentation for private investment funds, we have also been General Partners in successful PIFs, served on the boards of portfolio companies, and advised general counsels of PIFs across the globe. These real-world experiences make us exceptionally qualified and adept at providing our clients with valuable insights into current market trends.
Ready for the new normal
Veritas Global provides full-service representation in the specialized field of private funds, including investments that involve digital assets such as cryptocurrencies.
We offer strategic, sensible, and business-oriented advice on forming new funds and raising capital, regulatory compliance, investment management, corporate finance and restructuring, intellectual property issues, exit strategies, reviewing new investment opportunities, and all other undertakings that entail legal representation.
With our hands-on, solutions-oriented approach, we have successfully worked with private equity investors, family offices, and wealth managers all over the world, not only as competent advisors on every stage of the investment life cycle, but also in conducting due diligence processes that are indispensable to making informed business decisions that will greatly determine your success in the new normal.